$4 gas for several US states

$4 gas is the average cost per gallon in six US states now. Will $4 gas spread across the country?

Melissa Nelson / AP

Gas prices are creeping toward $4 a gallon, in Pensacola Beach, Fla., in this April 13, 2011 photo. The latest prices show that $4 gas is the norm in six US states.

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April 18, 2011

By Pablo GorondiAssociated Press

Oil prices fell to near $108 a barrel Monday as gasoline jumped to average $4 a gallon in six U.S. states, raising fears higher fuel costs will undermine crude demand.

News that Saudi Arabia, the world's largest crude producer, had cut its oil output also pushed down prices.

By early afternoon in Europe, benchmark crude for May delivery was down $1.61 at $108.05 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose $1.55 to settle at $109.66 on Friday.

In London, Brent crude for June delivery was down $1.20 to $122.25 a barrel on the ICE Futures exchange.

The national U.S. average for gasoline has increased for 26 straight days, and is now at $3.83 per gallon, up 29 cents from a month ago.

"Oil is reaping the (benefits) of rising commodity prices in general, the dollar's weakness, investor interest and supply-side risks," said analysts at Commerzbank in Frankfurt. "There is no real shortage of oil on the market, though. "

Some analysts expect rising global fuel costs will eventually hurt crude consumption and likely trigger a drop in oil prices, which are up 29 percent since mid-February. Crude jumped to $147 in 2008 and gasoline averaged as high as $4.11 a gallon before the U.S. economy plunged into recession in 2009.

"Springtime gasoline in the U.S. has never cost more," energy consultant The Schork Group said. "Automotive diesel in the U.K. is at an all-time high and the price on the continent is fast approaching levels not seen since the 2008 bubble."

However, energy department figures last week showed a large gasoline supply drop, suggesting higher prices still haven't curbed consumer spending. Traders will be closely watching the latest inventory data scheduled to be released Wednesday.

Naimi said Saudi Arabia, the world's largest oil exporter, cut daily output to 8.3 million barrels in March from 9.1 million barrels in February because of what it saw as excess global supply.

The Saudi decision "will no doubt fuel the discussion ... of high prices now starting to hit demand. It would also explain why the price of oil did not rise following the surprise cut in Saudi production," Commerzbank said.

In other Nymex trading in May contracts, heating oil fell 2.98 cents to $3.1944 a gallon and gasoline dropped 2.74 cents to $3.2618 a gallon. Natural gas futures were down 2.7 cents at $4.177 per 1,000 cubic feet.